Crossing of 200 EMA Needed? (Scalping Strategy)

Hi there,

  • I am using 3 EMAs: 21, 50 & 200.
  • RSI (upper/lower band: 50)
  • Fractals indicator
  • 5 min. timeframe

In order to place a valid trade, I am looking for the following:

For example, BUY

  1. The line needs to be above the 50 RSI
  2. The price needs to be above ALL the EMAs
  3. Crossing over of the 21 and 50 EMAs with the 200 EMA where all the EMA moving in an upwards direction.
  4. Appearing of the ‘green’ fractals’ sign

I have a question regarding #3 >>

If the 21 and 50 EMAs really need to cross the 200 EMA in order to make the trade valid??

Or that I can place a trade even if it does not cross, BUT all the EMAs going in the same upward direction?

(#1, 2 and 4 must be met anytime.)

Many thanks!!
Michael

I understand that you are using somebody else’s trading plan based on rules. If you follow the process recommended by Babypips school of pipsology, you would be backtesting this plan on one currency pair first, then others. I would look for the following information from backtesting:

1 For your chosen pilot pair to test, what is the timeframe in which you are trading? In other words, does a candle represent a one second, one minute or other time period? It is not obvious from your chart snippets.
2 In a multiple day trading period, how many times does this event occur?
3 For each event it occurred, was the trade a profit or would it have hit your stop loss before making profit?
4 Adding up all the event profit and losses, did you win or lose money?

Then analyze the same omitting #3. Does it change the results?

Logical question?
Your chance of finding a member who can definitively answer you depends on (a) whether he tried this trading plan verbatim, (b) whether he did backtesting, then forward testing and was successful and (c) if one did, are they willing to share a winning trading plan with somebody they don’t know from Adam, given that the more people use the same trading plan, the more likely it is that it will fail in future?

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These look like 5 min charts?

My own trading strategy is very similar to this and always has been. But I do not trade such short term charts. My own stalking ground is on the 4h/1h combo. A 200 EMA might sound like a long time but on a 5min chart that is still an intraday time period and therefore more reflective of daily fluctuations rather than any underlying trend.

I say this because waiting for short term EMA’s to actually cross over the 200 EMA on a 5min chart is likely to miss the early part of a move and, even worse, get you in just at the point where the intraday price action starts a swing in the other direction! :smiley:

Personally, I only use the 200 EMA has a guide to overall direction/trend strength. It is worth remembering that the benefit of using these three EMAs is in comparing the recent direction relative to the more distant movement. I.e. Price action is making a significant change in direction (but we do not know for how long or how far!).

Therefore, I don’t think waiting for an actual crossover of two short term EMA’s over the 200 EMA is necessary or even recommended. However, when the shorter EMA’s turn in towards the 200EMA it is a sign of a pullback or consolidation. Whether it is worth trading this or not is a subjective decision. I often do take such a trade if there is plenty of room towards the 200EMA, looking for a return to, or near to, its value.

On the other side, when price is above all three EMA’s and all three line up then it is a good sign of a trend and maybe a trailing stop is better than a nearby TL. But, again, I would only do that on longer timeframes and not the 5min, where moves, by definition, tend to be shorter.

One point worth noting when using the 50 and 200 EMA’s. The 200EMA on a 15min chart is a proxy for the 50EMA on the 1h chart, and the 200EMA on the 1h chart is a proxy for the 50 EMA on a 4h chart. So when looking at the 200EMA on the lower TFs, you are actually simultaneously looking at the 50EMA on the higher TF (where the multiple is x4). This can be a useful way of handling multiple timeframes.

As a word of warning, though. EMA values are simply the result of a mathematical formula. If prices always moved with the same speed and volatility, as in sine waves, then this would be fine. But prices jump about sometimes smoothly and gently, sometimes roughly and erratically. Moving averages cannot handle that very well and so crossovers are generally a poor basis for trade entry decisions - and even worse for trade exits (where prices move faster at trade-ends compared with trend-starts).

As a result, in general, I would say that EMA’s are far better as part of a discretionary trading system rather than as the basis for a strictly rules-based system. One can curve-fit EMA’s to any sample of price action - but that does not mean it will successfully repeat itself in future price movements…

Don’t know if that is any help but maybe something to think about! :smiley:

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Many thanks for your in-depth reply and explanation!

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@Michael0410
As a 5mins and 1min trader, of nigh on 20yrs, I would only consider 200MA and even 50MA as a possible dynamic S/R
The most important MAs I would suggest - 8EMA and 20SMA (of course 9EMA and 21SMA are ok)
Another tip - I would leave forex alone, indices are much better if you are on 5min charts. DAX and FTSE in morning (UK time) and Nasdaq and DOW in afternoon. Don’t write off 1min chart, sometimes when the 5min chart is a bit rangy, you can find micro trends on 1min yielding easy 20pts
Don’t believe anyone who says MA crossovers don’t work, just stay out of sideways crossovers.

Just ignore this comment as it won’t make sense yet… but there’s 35 different lines, dots, and arrows all going up and down, manipulated in one way or another, derived from the same source. I believe this strategy is ment to confuse and complicate but what do I know. I honestly don’t know what’s going on in the picture.

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It’s a masterpiece of contemporary art :rofl:

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deleted replaced by next post

Reminds me of my attendance at a Greg Secker trading course (knowledge to action) in 2010 or 2011.

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You’re using smoothed moving averages, not exponential ones.

A 21-bar smoothed MA is a 41-bar EMA under another name. A 50-bar smoothed MA is a 99-bar EMA under another name. A 200-bar smoothed MA is a 399-bar EMA under another name.

The EMAs you’re actually using are therefore EMA-41, EMA-99 and EMA-399. I appreciate that this wasn’t your intention, but it’s what you’re doing.

The formula to convert a smoothed MA into an identical EMA is simply to double it and subtract 1.

It’s interesting. I will try to use this rule to develop an EA. I will post the result here. :slight_smile:

Don’t confuse SMA (simple ma) with SMMA (smoothed ma)

Hi @Michael0410, here is the result of your strategy.

The stats is

I have done it using M5 to H4 (EURUSD), the results are about the same. It’s a 50% win rate scenario